Treasury to start "borrowing" 60 billion per month from fed

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The Federal Reserve, in a surprise announcement, set in motion a plan Friday to ease unexpected strains seen in short-term money markets last month.

The Fed said it will start to expand its balance sheet next week by purchasing U.S. Treasury bills, adding reserves to the financial system to avoid a recurrence of the unexpected strains seen in short term money markets last month.

At the same time, the Fed will extend its schedule of overnight and more longer-term repurchasing agreement operations to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures.

Last month, the Fed was forced to step into contain stressing in funding markets after the overnight repo rate, or how much banks and hedge funds have to pay for short-term borrowing, rose so high that the Fed’s benchmark interest rate pushed above its target range.

The Fed disclosed that its interest-rate setting FOMC committee had an unscheduled meeting on Oct. 4 to discuss the situation in the short-term lending markets.